Global Warming and Insurance Impact on Companies

Roberto Ceniceros the senior editor and Los Angeles bureau chief of Business Insurance Magazine speaks with Craig about the trend that they recently started reporting on about lawsuits pending against companies who are being accused of contributing to global warming and unnatural climate change.

Is this the next frontier in the global warming debate?

What do businesses and insurers need to do to prepare for a potential spike in lawsuits and environment-related claims?

Will corporate responsibility or the courts force companies to control emissions?

What sectors are most at risk of being blamed for global warming and unnatural climate change?

The publication of a U.N. report linking human activity to global warming won’t be enough to cause immediate liability problems for industrial companies, but it does increase the chances of more claims filtering through to insurance policies in the future, some experts say.

The report, which links the burning of fossil fuels with more extreme climate conditions, may increase the likelihood that commercial policyholders and their liability insurers will have to fund more defenses against allegations that their activities caused financial losses due to increased storm activity, they say.

Even before the release of last week’s report, some policyholders have sought advice about coverage under their commercial general liability policies for potential global warming claims, said Adam Cole, an insurance recovery expert at Heller Ehrman L.L.P. in San Francisco.
Already there are a few lawsuits awaiting trial that contend that industrial companies should be held liable for their alleged contributions to global warming, Mr. Cole said.

A class action filed by Mississippi homeowners, for example, targets oil, chemical and utility companies over their emissions.

The suit, Comer et al. vs. Murphy Oil USA et al., which remains alive 14 months after it was filed, claims that global warming played a role in causing Hurricane Katrina, which damaged homeowners’ properties.

The lawsuit, which “everybody thought would get thrown out and didn’t,”
represents a “first shot across the bow,” for potential corporate liability for global warming-related losses, said Dave Dybdahl, president of American Risk Management Resources Network L.L.C., a Madison, Wisconsin-based environmental wholesale brokerage.

In addition, last year the former California Attorney General Bill Lockyer sued several Japanese and U.S. auto manufacturers, said G. Andrew Lundberg, partner and policyholder attorney at Latham & Watkins L.L.P. in Los Angeles.

Hot debate

That lawsuit alleged that the manufacturers’ automobiles contribute to global warming with negative effects for California’s resources and environmental health. The current Attorney General Edmund Brown Jr. said last week he would continue to pursue the action, although he also said he would seek a settlement.

“I think insurance companies will have a very, very hard time avoiding having to defend some of these cases,” Mr. Lundberg said.

For now, a standard for holding corporations negligible for global-warming related losses does not exist, Mr. Dybdahl noted.

But events such as the Mississippi suit and the release of the report by the United Nations’ Intergovernmental Panel on Climate Change, can help create liability where it previously didnot exist, he said.

The “Climate Change 2007” report, written by scientists and officials from 113 countries, said that recent global warming was very likely to have been caused by human activity. The report also says that increased hurricane strength is more likely than not linked to global warming.

As the notion that emitting greenhouse gases is detrimental to the environment takes a firm hold, companies are more likely to be held responsible for damage linked to global warning, Mr. Dybdahl said.

Insurers could face substantial liability exposures under occurrence-based commercial general liability policies that they sold over the past decades, he said.

Brokers compare potential global warming liability claims to the emergence of asbestos and toxic tort pollution losses in the past. Both asbestos and pollution losses resulted from business practices once considered standard and the damages they caused mounted before the liabilities were fully understood.

According to Mr. Dybdahl, pollution exclusions in some commercial general liability policies may not apply to gases linked to global warming, so insurers may have to pay defense costs and court judgments that are related to damage allegedly caused by global warming.

“If you are a risk manager and you are concerned about global warming, you should load up on occurrence-based general liability policies today because you are buying subsidized insurance that has no rate component for that risk,” he said.

Claims for global warming losses would extend back to before insurers inserted pollution exclusions into their liability policies, Mr. Taylor said. Additionally, many utility companies have purchased policies with broad pollution coverage, he added.

“I think you would find there is going to be carrier involvement if there are claims … a lot like we have had with asbestos and toxic torts,” Mr. Taylor said. “We are talking about an aggregation of liabilities that span years … and the emissions have been going on literally since the start of the industrial revolution.”

Several insurers contacted declined to discuss the issue.

However, Ivo Menzinger, head of sustainability at Swiss Reinsurance Co.
in Zurich, said the report has not materially changed the issue of causation, so there is still a huge challenge in terms of proving a specific company contributed to a loss.

Causation

Laura Foggan at Wiley Rein Fielding L.L.P. in Washington, a defense attorney and pollution liability expert, said global warming does not present a “near-term coverage issue” for insurers. Even assuming that global warming contributes to climate change, plaintiffs in an underlying liability lawsuit would still have to prove that a company’s specific activities caused a particular event such as a hurricane, she said.

Then they would have to link that event to a specific bodily injury or economic loss that could be compensable under an insurance policy, said Ms. Foggan, who believes commercial general liability pollution exclusions would stand.

Policyholder attorneys and brokers agree that proving the merits of underlying global warming lawsuits would be difficult for plaintiffs.

Even if such lawsuits survived motions to dismiss, plaintiffs would still need scientific testimony to help pin
responsibility for damages on a specific corporation’s practices, Mr. Cole said.

BACKGROUND:

Published by Crain Communications, Business Insurance is a weekly news magazine serving corporate and institutional executives who purchase and administer insurance and self-insurance services, risk management and safety programs, manage employee benefits and hold responsibility for conserving corporate assets. With more than 50,000 readers, Business Insurance’s audience also includes underwriters and sellers of insurance and related services.

Business Insurance Magazine is the nation’s leading insurance industry publication.

ROBERT CENICEROS has been with Business Insurance Magazine for more than twelve years. He is currently the Los Angeles Bureau Chief and Senior Editor.

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